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January 20, 2016 By AMK

Use of ‘other transaction’ agreements limited and mostly for R&D activities

The Government Accountability Office (GAO) has released a report consisting of a review of federal agencies’ use of so-called “other transaction” authority.  

Eleven federal agencies are authorized by Congress to use other transaction agreements — which generally do not follow a standard format or include terms and conditions required in traditional mechanisms, such as contracts or grants — to help meet project requirements and mission needs.

Other Transaction Agreements - GAO - Jan. 2016What GAO Found

Most agencies cited flexibility as a primary reason for their use of other transaction agreements, and used agreements mostly for research and development (R&D) activities. Officials from 7 agencies told GAO the authority allowed them to develop customized agreements that addressed concerns over requirements in traditional mechanisms that some companies viewed as potential obstacles to doing business with a federal agency. This flexibility allowed agencies to address concerns regarding intellectual property and cost accounting provisions that would otherwise need to be included when using traditional mechanisms, such as contracts. In addition, other transaction agreements allowed some agencies to tailor other terms and conditions of agreements as needed when working with other entities. Most agencies — 9 of the 11 — used other transaction agreements for R&D activities for a range of projects from medical research to energy development research. Two of the 9 agencies — DoD and DHS — also used other transaction agreements for prototype activities. Three agencies, including TSA and NASA, used other transaction agreements for activities not related to R&D or prototype development, including airport security and education and outreach.

Other transaction agreements were a small proportion of most agencies’ contracting and financial assistance activities for fiscal years 2010 through 2014. Compared to traditional mechanisms, most agencies used other transaction agreements sparingly, according to officials. Most agencies had a small number of other transaction agreements — 75 or fewer — in fiscal year 2010, and the number of agreements generally remained low by the end of fiscal year 2014. Officials cited budgetary and other reasons for this trend. In contrast, two agencies that used other transaction agreements for activities other than R&D and prototypes — TSA and NASA — had larger numbers of agreements. In fiscal year 2010, TSA and NASA had about 400 and 2,220 agreements, respectively. By the end of fiscal year 2014, these agencies had increased their use to about 640 and 3,220 agreements, respectively.

Why GAO Did This Study

Federal agencies use a variety of acquisition and financial assistance mechanisms, such as contracts, grants, and cooperative agreements, to help meet their missions. Some federal agencies have received authorization to use other transaction agreements, which allow an agency to enter into agreements other than traditional mechanisms, such as contracts. As a result, agencies can customize their other transaction agreements to help meet project requirements and mission needs. As GAO reported in May 2002, this authority carries risks, however, because such agreements may be exempt from the Federal Acquisition Regulation (FAR) and other requirements that are intended to protect taxpayers’ interests.

GAO was asked to review federal agencies’ use of other transaction authority. This report describes (1) which agencies are authorized to use other transaction agreements and the extent to which agencies have guidance to implement the authority, (2) why agencies used other transaction agreements and for what types of activities, and (3) the extent to which agencies used other transaction agreements for fiscal years 2010 through 2014. GAO reviewed statutory authorizations, agencies’ guidance, and information on agencies’ other transaction agreements and use for fiscal years 2010 through 2014, and interviewed officials from each of the agencies authorized to use other transaction agreements.

As a result of this review, GAO made no recommendations.  A copy of GAO’s report can be found at: http://www.gao.gov/assets/680/674534.pdf

 

Filed Under: Government Contracting News Tagged With: DoD, FAR, GAO, HHS, NASA, other agreements, other transaction agreements, other transactions, R&D, research, TSA

September 12, 2011 By AMK

How Sept. 11 changed government contracting forever

When terrorists hijacked four planes to use them as weapons and killed thousands of innocent people in the process, a chain reaction started that quickly swept across the country.

Today we live with many of those changes, from heightened security checkpoints at airports to more requirements to get a driver’s license.

Government contractors saw their market changed overnight, with a rush of government spending on new security priorities, creating an abundance of business opportunities.

Ten years later, contractors still feel the impact, including the types of business opportunities available, the role of the financial markets and the relationship between contractors and government agencies.

But other changes have been at work as well. Some are counteractions to the reaction to the Sept. 11 attacks. Others would have happened anyway.

Either way, contractors have been in a near-constant state of evolution over the past decade. That condition is likely to extend well into the next decade.

A need for speed

The biggest game-changer was the sudden awareness of the security vulnerabilities that threatened the United States and the need to address those vulnerabilities.

“We weren’t naive anymore,” said Tony Jimenez, founder and CEO of MicroTech LLC.

Before the attacks, terrorism was thought of as something that happened somewhere else.

“What Sept. 11 brought home was that we were vulnerable,” said Cyril Draffin, vice president of homeland security at Northrop Grumman Corp.

The government reaction was to rapidly start addressing security issues, which meant the allocation of funds and the awarding of contracts. First, there was the creation of the Transportation Security Administration and then the Homeland Security Department.

Other agencies such as the Justice and State departments increased their spending on security. More money also began flowing to state and local governments in the form of grants.

The heightened security concerns also led the United States to launch the wars in Afghanistan and Iraq, and supporting those efforts also helped fuel an explosion of spending with government contractors.

In fiscal 2000, the contractors on Washington Technology’s Top 100 rankings had an aggregate of $26.8 billion in prime contracts. In fiscal 2010, the number had climbed to $132 billion. Much of that growth was driven by the need to support warfighters and to support intelligence and homeland security initiatives.

“The clock speed of contracts and task orders increased significantly,” said Paul Leslie, CEO of Dovel Technologies. “With 9/11, money moved very quickly, and companies had to adjust and modify their business development efforts and response times.”

The government wholly embraced the use of indefinite-delivery, indefinite-quantity contracts because agencies could move quickly to address a need. That trend has become a fact of life in the government market as these large task-order contracts have become the vehicle of choice for buying services and products.

“The increased use of IDIQ contracts and the quicker turnaround of those activities has changed how we do contracting,” said David Zolet, president of business development for Computer Sciences Corp.’s North American public-sector business.

Security concerns also changed how contractors and customers interacted.

“You used to be able to move on and off military facilities,” Jimenez said. “The only place they seemed to check your ID was the PX.”

The current lockdown state of many government agencies, military and otherwise, creates challenges for contractors. “It limits the ability to market your company,” Jimenez added.

There was also less need for security clearances pre-Sept. 11.

“But a lot of the changes are good because it separates the wheat from the chaff and you have to be a much more professional organization today,” he said.

Wall Street wakes up

As the market exploded in terms of spending, companies grew rapidly and, unlike the 1990s and the dot-com era, Wall Street began to notice the government market’s growth potential, said Jerry Grossman, a managing director with the investment bank Houlihan Lokey.

“You had this migration of interest to the government,” he said.

And the market lived up to its potential, with spending on IT services between 2002 and 2006 growing at 10 to 15 percent a year. The earnings of many public and private government contractors during that time were growing at 20 to 25 percent a year.

“The third leg of the equation was that the government was outsourcing more,” Grossman said. “Companies really saw their growth rates get turbo-charged.”

Wall Street’s interest sparked the initial public offerings of a slew of companies such as ManTech International, SI International SRA International, Veridian Corp., Anteon International, MTC Technologies, Sciences Applications International Corp., ICF International, NCI Inc. and DigitalNet.

The window on IPOs came to a close for the most part by 2006 as the market cooled and growth rates returned to more traditional levels.

But Grossman doesn’t expect Wall Street to walk away from those as budget cuts hit the government. “Sept. 11 planted in people’s minds — the public, the taxpayers, investors — the continuing importance of defense, national security, intelligence and homeland security,” he said.

Strategy shifts

For some companies the rapid growth in the market created a management dilemma: how to balance the pursuit of short-term business opportunities with more sustainable business.

SAIC won a contract to install and integrate the communications, electronics and other command and control equipment on mine-resistant, ambush-protected vehicles known as MRAPs. The military needed a lot of them and needed them fast in Iraq and Afghanistan. The program delivered thousands of vehicles and was up and running in less than a year. But as the wars wind down, those kinds of projects won’t continue.

“That’s an example of a near-term opportunity but not something that is sustainable,” said Deborah James, executive vice president for communications and government affairs for SAIC. She ran the program, based out of Charleston, S.C., for the company. “But I certainly hope and believe that the speed and agility we gained will stay with us.”

At the same time it is critical that companies focus on more sustainable business areas, particularly in light of the current budget and economic environment. For example, cybersecurity is an area James and other executives consider a sustainable market.

“I don’t care what business you are in, cyber is important to you,” she said.

While threats to people and property remain real, cyber threats have increased in their frequency and ferocity in recent years.

In today’s current budget environment, which some executives said the boom in homeland security spending caused, cybersecurity is seen as an areas that will continue to be funded.

“Cyber would have evolved even without Sept. 11,” Draffin said. “But it is a reminder that people want to do us harm on our own territory.”

A lasting legacy

The aftermath of the terrorist attacks ushered in a new relationship between contractors and government agencies.

“We had this massive growth the first four or five years after Sept. 11, but that’s just the numbers,” said Stan Soloway, president of the Professional Services Council, an industry group, and a Washington Technology columnist.

“What has so dramatically changed in the last decade is that the government’s highest-priority missions require sophisticated technology and related skills, and that’s where the government really struggles to compete for people,” he added.

The government doesn’t have the resources to hire enough people with the high-end technology skills in areas such as cybersecurity, counterterrorism and data analytics to meet the needs of the government mission.

People with those skills can command a salary more than twice what the government can pay. “It’s not greed by contractors; it is what the commercial market dictates,” he said.

It doesn’t mean the government can’t hire any of these people, but it can’t hire enough, so the question is more of balance, Soloway said.

“How that mission-critical work is performed by the government has changed permanently,” he said. “Sept. 11 really kicked that off, and that’s the biggest fundamental change to the market of the last decade. And there is no indication that it is going to change over the next decade.”

About the Author: Nick Wakeman is the editor-in-chief of Washington Technology.  Published 9/7/2011 at http://washingtontechnology.com/articles/2011/08/29/cover-sept-11-legacy.aspx?s=wtdaily_080911 

Filed Under: Government Contracting News Tagged With: cybersecurity, DHS, IDIQ, IT, Justice Dept., State Dept., technology, TSA

March 2, 2011 By AMK

Bidders bite back

High above the Potomac and Anacostia rivers in Southeast Washington, construction crews have begun the largest federal construction job since the Pentagon, transforming St. Elizabeths Hospital into the new consolidated campus of the Homeland Security Department. The $3.4 billion project encompasses 4.5 million square feet and eventually will house 22 government agencies.

But the project hit a snag in October 2010 when four losing bidders for a $2.6 billion information technology contract filed protests with the Government Accountability Office. They challenged the selection of Northrop Grumman Corp. to run a massive data network at the site and argued their own bids were unfairly evaluated. Recognizing that mistakes might have been made, the General Services Administration opted to cancel the contract and begin anew.

Northrop Grumman has since filed its own protest of GSA’s decision, further delaying issuance of a new solicitation.

Such is the new reality in federal procurement. Key contracts – whether it’s $500 million to create an IT infrastructure for the Transportation Security Agency, or $40 billion for a fleet of Air Force aerial refueling tankers – can grind to a halt because of a bid protest. Until the past decade, Ralph White, who heads the bid protest division at GAO, would stop and take notice when contracts protested reached nine figures. “I considered it a big deal,” White says. “Now a $100 million contract is a fairly routine thing. We did not used to see that, and certainly not at this level.”

Protest filings are on the rise at GAO, reaching a 15-year high in fiscal 2010. Some analysts note few protests are ultimately sustained, and many are dismissed in a matter of weeks. But the delays come at a cost to the government, contractors and the taxpayer. “At the end of the day, it really slows down the process of getting hardware and services to the warfighter,” says Daniel Beck, spokesman for the Chicago-based Boeing Co.

More Protests

GAO bid protests, in some form or another, have been part of federal procurement for nearly a century (the first protest was filed in 1926). But it was not until passage of the 1984 Competition in Contracting Act that the practice became formally structured and regulated by Congress. Companies that believe they were not treated fairly during source selection also can challenge the decision with the U.S. Court of Federal Claims, or directly with the contracting agency, though GAO overwhelmingly is the preferred option.

During the 1980s and early ’90s, contractors filed an average of nearly 3,000 protests per year – an astounding figure given the relatively low number of government contract actions at the time. Surprisingly, the rise in protests during the past decade pales in comparison to the sharp increase in contract spending. For example, between fiscal 2001 and 2008, procurement actions increased almost 600 percent and their value rose more than 100 percent, according to the Congressional Research Service. But the number of protests filed during that period went up only 37 percent, indicating that despite popular perception, the proportion of contracts that were protested actually shrank.

“Each year, our contracting agencies take hundreds of thousands of contract actions that could be protested, but more than 99 percent of them don’t get protested,” says Daniel Gordon, administrator of the Office of Federal Procurement Policy and the Obama administration’s top acquisition official. As the government continues to slow its acquisition spending, Gordon expects protest figures to decline as well.

But recent data suggest otherwise. During the past three years, GAO protest filings have skyrocketed 39 percent, reaching 2,220 in fiscal 2010, the highest point since 1995. There are several explanations for the increase, most notably the agency’s expanded jurisdiction to task-and-delivery order protests of more than $10 million. In 2010, 189 task order contracts were protested. In 2008, Congress also authorized contractors to protest TSA acquisitions and public-private competition decisions made under circular A-76.

Analysts also see the influx of lucrative, multiyear, indefinite delivery-indefinite quantity contracts – which have the potential to lock a contractor out of agency work for up to 10 years – as a contributing factor. “Larger companies, which were historically more reluctant to file protests because of customer relations concerns, are a little less reluctant,” says Thomas C. Papson, a partner at McKenna Long & Aldridge in Washington. “It’s almost a circle. As you see your competitors filing protest after protest, it almost legitimizes it from that standpoint.”

While protest filings are on the rise, the percentage of cases GAO sustained has remained flat at roughly 20 percent. Most cases never get to that point as contractors find other ways to settle disputes in their favor. Agencies often will eliminate the middleman and renegotiate directly with the contractor.

The 2010 effectiveness rate – based on a contractor receiving “some form of relief from the agency,” frequently the reopening of the contract – was 42 percent, according to GAO data. “Protests give agencies and their counsels an opportunity to have a sanity effect on what they have just done,” Papson says. “It allows them to go back, take a fresh look with the benefit of the protest issues put on the table and correct the mistakes.”

The parties also can agree to use alternative dispute resolution, an increasingly popular “outcome prediction” process in which GAO attorneys inform the parties early in the process about how they will likely rule if forced to draft a decision. The technique typically leads to protests being resolved without further GAO intervention.

The high rate of agency interventions in bid protests could signal that contracting officers are making too many mistakes in following the terms of the solicitation. “The ones that get pulled back without a decision usually have some really basic mistakes in them,” White says. “You can’t say that you will evaluate [a proposal] one way and then evaluate it another way.”

Abusing the System?

A GAO protest generally triggers an automatic stay of the contract award or performance while the protest is pending, though the agency is allowed to move forward under urgent and compelling circumstances. GAO has up to 100 days to issue a decision, a deadline it has never missed.

But critics suggest companies have abused the process either by looking to extend the life of an existing contract by a few months, or by grasping at straws in an effort to uncover some minor error that could lead to a reversal. “We feel protests are being used as a standard business practice, and that disturbs us,” Beck says. “We feel that protests are appropriate if there is strong evidence of a problem in the acquisition process but we don’t think it’s appropriate as a post-award strategy for those contractors that were defeated by bids that were simply deemed superior in a fair and open process.”

James E. Cuff, executive vice president of business development, strategy, and mergers and acquisitions at SAIC in McLean, Va., suggests some protests are little more than fishing expeditions. By filing a protest, a company can gain access to far more information than it would typically be entitled to during a post-award debriefing. “It would be healthier for industry, and clearly healthier for the customer, if protests were an extraordinary event,” Cuff says. He’d recommend a system in which “people can’t protest simply because they don’t like the answer and they are hoping to find some flaw, even if they don’t know of any flaw, when they file the protest.”

SAIC and Boeing have reputations for filing fewer bid protests than do other large contractors. “We treat protests like extraordinary events,” Cuff says. “We set a high bar when protesting. There must be a significant mistake in the process.”

Boeing, however, was responsible for arguably the most significant protest in recent memory: its successful challenge in 2008 of the Air Force’s aerial refueling tanker contract awarded to EADS North America and Northrop Grumman. “It’s a costly exercise to go through for us,” Beck says. “We also need to be thinking about our relationship with our military and government customers. But with the tanker, we felt there was strong ground for a protest, and GAO validated our concerns.” The Air Force has yet to issue a new contract for the tankers.

Pentagon contracts are particularly vulnerable to bid protests. From fiscal 2001 to 2008, Defense Department protests increased 39 percent, the Congressional Research Service notes. “Protests are extremely detrimental to the warfighter and the taxpayer,” wrote then-acting Undersecretary of Defense for Acquisition, Technology and Logistics John Young Jr. in an August 2007 memo. “These protest actions consume vast amounts of time for acquisition, legal and requirements team members; delay program initiation and the delivery of capability; strain relations with our industry partners and stakeholders; and create misperceptions among American citizens.”

But Gordon suggests its focus on transparency and timeliness makes the U.S. protest system a model for other nations. “I don’t think that protests affect agencies’ ability to rapidly award contracts, except for the few dozen each year where GAO finds the agency violated procurement law,” he says. “And in these cases, it’s important for us to stop and get things right.”

Tip of the Iceberg

With contract spending expected to decline in the coming years, particularly at Defense, and the larger economy still in slow recovery, some analysts believe the incentives for filing protests will only grow stronger. “Companies are concerned about being locked out of the market and may think it makes more sense to protest,” says Rich Rector, chairman of the government contracts practice and partner at the Washington law firm DLA Piper. “With the decline in spending, these are tough economic times, and they are getting tighter in the government space. It could drive people not to be as sanguine when they lose a contract.”

It’s unclear, however, what, if anything, can be done to stem the tide. Some industry officials want to see a financial penalty levied on losing protesters as a disincentive to filing frivolous challenges. While the topic has been batted around at Defense, the plan does not yet appear to have the administration’s support. Some have speculated that fining protesters could deter many firms, including small businesses, from filing legitimate protests.

Others argue that protests will decline only if the government provides additional resources and training to an overburdened and overworked acquisition workforce. “We need to ensure that competition is done right the first time so that the kind of obvious errors you see in some major procurements get made less frequently,” Papson says. “Some mistakes leave you shaking your head and asking how they missed that. The answer may be that they are inadequately staffed, or they were under pressure to get it done in an unreasonable amount of time.”

Some agencies, however, might be going overboard to protect against protests. Too often, contracting officers issue awards based on initial proposals without conducting further dialogue with bidders for fear that discussions are a “protest-rich area,” Gordon says. The result, he says, is the government might be missing out on better or less expensive proposals. In recent months, OFPP has begun meeting with contracting officers in an attempt to “myth bust” the idea that talking with vendors will lead to protests.  

“We need to talk with vendors early and often in our acquisitions,” Gordon says. “And not talking with them to avoid protests only hurts the government, particularly when more communication could help the agency better figure out what it needs and how to buy it.”

While the bid protest system is undeniably imperfect, most agree it’s one of the success stories of the American federal procurement structure. GAO works through its cases rapidly and judiciously, often with little complaint from industry. All the while, the bid protest staff at GAO has remained static at roughly 30 employees for the past decade. “What you get is a lot more transparency, integrity, or accountability than in other places,” White says. “It’s a system I would hate to walk away from and think about what it would mean to provide no opportunity for a redress when people think that something was unfair.”

 — by Robert Brodsky – Government Executive – February 1, 2011

Filed Under: Government Contracting News Tagged With: acquisition training, acquisition workforce, bid protest, contract dispute, delivery order, DHS, DoD, GAO, GSA, IDIQ, OFPP, task order, TSA

December 22, 2010 By AMK

Best and worst performances in government contracting in 2010

As old years end and new ones begin, I can’t resist the temptation to talk about who had a good year and who had a bad year.

Admittedly my criteria are arbitrary so don’t hesitate to disagree. There are plenty of worthy candidates for best and worst year. Here are my picks. Please share yours.

Who had a bad year?

Small Businesses
As insourcing continued as a management strategy by many government agencies, small businesses felt the biggest impact. While companies across the size spectrum saw contracts go away or workers get recruited into government jobs, small businesses have the smallest cushion to absorb the hits.

Compounding the issue is that small businesses often are doing to jobs most likely to get insourced.

Small businesses also faced challenges in the market as agencies continue to bundle smaller contracts into larger ones that are difficult for small business to qualify for as prime contractors.

Who had a worse year?

Unisys Corp.

Their battle to hold onto their Transportation Security Administration infrastructure contract lasted nearly a year before they exhausted all their protests and appeals.

Unisys fought hard to keep the work, which had been worth more than $2 billion since the contract started in 2002. The recompete, worth about $500 million, went to Computer Sciences Corp.

The fight for Unisys to keep the contract went through multiple rounds, with Unisys winning most of those rounds. TSA was forced to reevaluate bids, but still picked CSC. The Government Accountability Office ultimately sided with TSA, and CSC was allowed to begin work on the contract in August.

Who had the worst year?

GTSI Corp.

I don’t think I’ll get many arguments about this choice.

A Small Business Administration suspension nearly sunk GTSI and the company is still reeling.

Accused of using small businesses as front companies to funnel money and work to itself, GTSI had to jettison its chief executive officer and general counsel just to get the suspension lifted. The company’s stock sank and its reputation is severely damaged.

The new CEO Sterling Phillips has vowed to accelerate the GTSI’s strategy of becoming a services company. But he’s the fourth CEO with that goal without even considering the impact of the now-lifted suspension.

Phillips acknowledged the hit the company’s morale has taken and is frank about the challenges ahead. He’s also confident that GTSI will come out of this intact and independent.

Who had a good year?

Agilex Technologies

The company suffered a tragic blow at the start of 2010 when its co-founder Robert LaRose died unexpectedly.

He was mourned by a who’s who of industry leaders who got their start in government IT under his tutelage.

But his legacy of setting high expectations lives on at Agilex, which experience explosive growth – beyond the 2010 goals LaRose set for the company before his death.

Revenue grew 70 percent. The company added 100 employees to its headcount and it launched a fourth line of business to pursue Homeland Security and Justice department customers.

The company is also one of the first Apple authorized systems integrators in the government market.

While LaRose’s loss surely weighs heavily at the company, the foundation he left behind continues to thrive.

Who had a better year?

TASC Inc.

Northrop Grumman sold the company to get out from under organizational conflicts of interest concerns. For TASC, the independence must have come as a breath of fresh air.

With its growth no longer limited by other work that Northrop had, TASC won new business with the Defense Department and other customers that need its technical analysis services.

Its biggest win was the FAA SE2020 contract worth $827 million to support the transition to NextGen air traffic control system.

It’ll be fun watching them in 2011 and beyond.

Who had the best year?

CGI Federal

I admit this reflects my personal bias because I love merger and acquisition news, but CGI Federal stepped up in a big way when it acquired Stanley for $1 billion.

Unlike most other major acquisitions, the two companies didn’t have much overlap so you didn’t have a lot of talk about “synergies,” that polite term for cuts. Instead, Stanley brought a whole new set of customers in the defense and intelligence world.

For Phil Nolan, Stanley’s CEO and the other senior executives, there had to be an immense feeling of satisfaction of having grown the company from a few dozen employees to hundreds. It was quite a ride.

Hopefully, we’ll see Nolan and others like George Wilson, Stanley’s executive vice president, reappear in the market sometime in the future.

– by Nick Wakeman – Dec. 22, 2010 – Federal Computer Week

Filed Under: Government Contracting News Tagged With: DoD, FAA, GAO, insourcing, performance, SBA, small business, TSA

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